Bron has EPS of $3.00 in 2002 and expects EPS to increase by 21 percent in 2003. EPS are expected to grow at a decreasing rate for the following five years, as shown in the following table. In 2008, the growth rate will be 6 percent and is expected to stay at that rate thereafter. Net capital expenditures (capital expenditures minus depreciation) will be $5.00 per share in 2002 and then follow the pattern predicted in the table. In 2008, net capital expenditures are expected to be $1.50 and will then grow at 6 percent annually. The investment in working capital parallels the increase in net capital expenditures and is predicted to equal 25 percent of net capital expenditures each year. In 2008, investment in working capital will be $0.375 and is predicted to grow at 6 percent thereafter. Bron will use debt financing to fund 40 percent of net capital expenditures, and 40 percent of the investment in working capital. The required rate of return and WACC for Bron are 12 percent and 10 percent respectively. Interest expense is 4 percent of earnings and tax rate is 30%. Current market value of debt is $500 million and the number of shares outstanding is 100 million. Estimate the value of a Bron share using FCFF and FCFE valuation approaches.
Bron has EPS of $3.00 in 2002 and expects EPS to increase by 21 percent in 2003. EPS are expected to grow at a decreasing rate for the following five years, as shown in the following table.
In 2008, the growth rate will be 6 percent and is expected to stay at that rate thereafter. Net capital expenditures (capital expenditures minus
Estimate the value of a Bron share using FCFF and FCFE valuation approaches.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
